1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION
2 5901 GREEN VALLEY CIRCLE
3 CULVER CITY, CALIFORNIA
4
5
6
7
8 REPORTER'S TRANSCRIPT
9 FEBRUARY 1, 2012
10
11 SALES AND USE TAX APPEAL HEARING
12 APPEAL OF
13 NNADI LINUS UDENGWU
14 NO. 515515 (AP)
15 AGAINST PROPOSED ASSESSMENT OF
16 SALES AND USE TAX
17
18
19
20
21
22
23
24
25
26
27 Reported by: Kathleen Skidgel
28 CSR No. 9039
1
1 P R E S E N T
2 For the Board Jerome E. Horton
of Equalization: Chairman
3
4 Michelle Steel
Vice-Chairwoman
5
6 Betty T. Yee
Member
7
8 George Runner
Member
9
10 Marcy Jo Mandel
Appearing for John
11 Chiang, State Controller
(per Government Code
12 Section 7.9)
13
Diane G. Olson
14 Chief
Board Proceedings Division
15
16 For Board of David Levine
Equalization Staff: Tax Counsel IV
17
18 For the Department: Scott Lambert
Hearing Representative
19
Robert Tucker
20 Tax Counsel IV
21 Kevin Hanks
Chief, Headquarters
22 Operations Division
23
For Petitioner: Nnadi Udengwu
24 Taxpayer
25 Cosmas Udengwu
Witness
26
27 ---oOo---
28
2
1 5901 GREEN VALLEY CIRCLE
2 CULVER CITY, CALIFORNIA
3 FEBRUARY 1, 2012
4 ---oOo---
5 MR. HORTON: Let us convene the meeting of the
6 Board of Equalization.
7 Ms. Olson, our next item.
8 MS. OLSON: Our next item is C23, Nnadi Linus
9 Udengwu.
10 Please come forward.
11 MR. HORTON: Mr. Levine, would you please
12 introduce the issues in this case.
13 MR. LEVINE: The issues in this petition are
14 whether adjustments are warranted for sales for resale
15 and exempt sales in foreign commerce, and whether
16 Petitioner was negligent.
17 MR. HORTON: Greetings. Would the taxpayer
18 please introduce themselves for the record. You will
19 have 10 minutes to make your presentation.
20 MR. NNADI UDENGWU: Good morning, Chairman
21 Horton and Members of the Board.
22 My name's Nnadi Udengwu, and to my left is my
23 brother Cosmas Udengwu.
24 MR. HORTON: Welcome.
25 MR. NNADI UDENGWU: I'm here -- I'm here today,
26 uh, at the Board to, um, briefly tell you about a
27 wholesale business that we have, that's registered under
28 my -- under my name. Um, Udengwu Auto Sale was
3
1 registered under my name because, uh, my brother Cosmas,
2 who used to work an auto dealership, at the body shop,
3 wanted to have a license so that he would be able to,
4 um, purchase, uh, auction -- um, auction cars. But
5 eventually he switched into shipping cars out -- out of
6 the country.
7 So the wholesale dealership was for mainly to
8 ship, buy, and send cars out of the country. So what we
9 had -- what we have is a wholesale dealership, which
10 means that, uh, we buy cars from the auction and then
11 they transfer it -- they're trans -- they're transported
12 out of the country. There's no tax involved in this
13 transaction.
14 In this business, uh, we, uh -- we bought cars
15 for some family members, and they used -- the cars are
16 not for sale but for use here in the United States. The
17 cars were transferred to a retail dealer, Clem's Auto.
18 It was not sold to him. But we collected the tax for --
19 from -- from the people that we buy the cars for and we
20 transferred it to Clem's Auto to register because he's
21 the retail dealer. And as a wholesale we -- we under
22 the impression that we're not supposed to handle taxes
23 because our business is for -- uh, for resale.
24 Uh, the only problem here is, personally I am
25 not a car dealer. I have not been selling cars myself.
26 I am employed by LA County Department and I've been
27 working for 25 years. So I derive my income from my
28 salary.
4
1 Um, I did not make any money. I did not
2 collect any tax from any sale of any vehicle. I
3 actually shipped some vehicles for myself, for my
4 family, but those were just for family use.
5 My brother, who is actually handling this
6 business, Cosmas, was mostly dealing -- most of his
7 business was sent out -- out of the state. So there was
8 no taxes involved. And the few cars that he bought for
9 some of, uh, his friends, um, there was no taxes
10 involved because he never actually sold the cars. He
11 actually transferred the cars to another dealer that
12 registered the care and collected the taxes and
13 registration fee.
14 So my -- our only problem with the Board was
15 being able, to, um, come up with all the Bill of
16 Ladings, and the Report of Sales are incomplete. And
17 the reason why we have this, um, lack of records was
18 this is our first time being audited, so he didn't know
19 that he has to keep this record. And most times when he
20 ship these cars out of the country, he was not himself
21 paying for a whole full container. He was actually
22 shipping cars with other dealers that own more cars than
23 he has in the container. So they are responsible for
24 the Bill of Lading. They kept it.
25 So, he wasn't able to get all of those Bill of
26 Lading. By the time we realized they needed -- we
27 needed the Bill of Lading, we were not able to collect
28 all of them from those people that he shipped the cars
5
1 with.
2 So basically, the issue here is lack of
3 records, not taxes. Now, we did not collect any tax.
4 We did not withhold any tax of sales tax from the Board.
5 That's just briefly of my case.
6 MR. HORTON: Thank you very much.
7 Department, please commence their presentation,
8 uh, with their introductions, please.
9 MR. LAMBERT: Thank you, Chairman Horton and
10 Members.
11 My name is Scott Lambert, and I'll be
12 representing the Sales and Use Tax Department today. To
13 my right is Kevin Hanks, also with the Sales and Use Tax
14 Department. And to Mr. Hanks' right is Robert Tucker
15 with the Legal Department.
16 Uh, the Petitioner is a used car dealer. Um,
17 and they are correct in that the major issue in this
18 particular audit is documentation.
19 Uh, the taxpayer reported none of their sales
20 as being subject to tax. Uh, the Department was, uh,
21 able to obtain the purchase of vehicles from the auto
22 auctions and they numbered, I believe, just over 250
23 vehicles. The Department was also -- was able to
24 document that, um -- I believe it's 70 something
25 vehicles that were shipped or sold in foreign commerce.
26 And those sales were, uh -- or vehicles were removed
27 from the audit.
28 Uh, that left about 170, 180 vehicles that were
6
1 unaccounted for. Um, there were a small number that
2 there were Bill of Ladings for, and there were issues
3 with the Bill of Lading. On some of them there were VIN
4 numbers that we were unable to trace back to the
5 vehicles purchased, uh, which can mean several things --
6 uh, they bought it from a private party; it was
7 purchased before the start of the audit period -- um,
8 and credit was not allowed for those vehicles basically
9 because they were not included in the taxable sales.
10 Um, there were also some Bill of Ladings that
11 there was a problem between the purchase of the vehicles
12 and when the vehicles were sent. Um, the Bill of
13 Ladings show that the vehicle was shipped out of the
14 country, in some cases six months before the vehicles
15 were purchased, uh, which, um, appears not to be
16 accurate. So, um, some clarification would need to be
17 provided in regards to those transactions before the
18 Department could allow those.
19 There also appears to be a number of vehicles
20 that were registered in the State of California to what
21 appears to be consumers, users of the vehicles. A
22 number of VIN numbers that were unsupported with the
23 Bill of Lading were sent to our Consumer Use Tax Unit.
24 They ran the VIN numbers through DMV and showed that the
25 vehicles were, in fact, registered here in California.
26 Uh, what is interesting is that the Petitioner
27 does not have a retail license to sell vehicles in
28 California. They have a wholesale license. The, um --
7
1 the, uh -- I'm trying to think of the proper word.
2 The -- the retailers, used car retailers, uh, are
3 different. Used car lots are the ones that register
4 them, not the taxpayer. The problem lies in the fact
5 that we cannot show how the vehicle was transferred or
6 sold to the used car -- to the other -- to the person
7 that registered the vehicle with DMV.
8 What it appears from the testimony that the
9 taxpayer has stated is that they're the ones that made
10 the sales. In some cases they collected the sales tax
11 and they had another used car lot register those
12 vehicles.
13 Uh, if the taxpayer had sold the vehicles to
14 the used car lots and they made the sales, then those
15 taxpayers would be responsible for the tax. We've taken
16 a look at the taxpayers -- or the used car -- the other
17 used car dealers to see if they had been reporting the
18 sales on their returns, and we are unable to
19 substantiate whether the used car lots that registered
20 the vehicles reported the tax on those vehicles.
21 So at this particular time what we have is
22 the -- is we know that the taxpayer had the vehicles,
23 that they're registered in the State of California, and
24 we're unable to substantiate who collected the -- or,
25 um, who actually made the sale.
26 It's not uncommon to have individuals that do
27 not have a license to register the vehicles in
28 California to actually make the sale and have another
8
1 entity that has a license register them. And from the
2 description that -- or from the Statement of Facts that
3 I just received -- and I will state I just briefly went
4 through them, and I don't know if I quite picked up on
5 everything in the short time that I had to look at them.
6 But that appears to be the argument, at least in some
7 cases, is that they collected the tax and then they had
8 somebody else register the vehicle, and they gave the
9 tax to that -- that other person that registered them,
10 which doesn't appear to have reported it.
11 So, that is a problem. So it basically comes
12 down to, uh, some problems with substantiation. There
13 may -- and the Department, uh, believes there may be
14 some additional vehicles that were shipped out of the
15 country. We don't have the documentation. If we had
16 that, we could, uh, allow them if it was the proper
17 documentation. And we're unaware of how the sales were
18 made.
19 So, without additional information -- and I'll
20 say, the information that's provided here just appears
21 to be, um, the purchase information which we already
22 had. So that doesn't clarify anything for the
23 Department. Uh, now, if I missed something, because I
24 will say I briefly went through this, so if I did miss
25 something and it's pointed out to the Department, we,
26 um, would respond to that accordingly.
27 So, uh, with that said, the Department concurs
28 with the Appeals Division decision and recommendation.
9
1 MR. HORTON: Thank you very much.
2 On rebuttal, please.
3 MR. NNADI UDENGWU: Yeah, just -- just to
4 support the evidence that we did not withhold the taxes,
5 I enclosed, too, some checks made out to Clem's Auto for
6 most of the cars that -- not actually -- some of the
7 cars, because we started looking for these records, um,
8 when we got notice of the audit.
9 So the checks that we sent, when he collected
10 the -- the car from the people that he buy the car from,
11 he collected the tax money knowing that it's going to be
12 paid to the state. But when we find that we're not
13 supposed to handle taxes, he transferred the money with
14 the car and the paperwork and the tax fee and
15 registration to a retail dealer. And most of this money
16 was paid to the retail dealer with the check, and copies
17 of the checks are included in the Statement of Facts.
18 And, again, to -- to, um, just to show that.
19 And then on -- even from the account that was open on
20 the business, Udengwu Auto Sales bank account, you can
21 see that there's no actual money coming in, into that
22 account from any sale or from any taxes. It was just
23 opened up in case there's anything that, you know, have
24 to cash a check, but there's none. And that bank
25 account was used by, um, Internal Revenue for the audit
26 of the separate business as was reported by Board of
27 Equalization this year -- last year, sorry.
28 Again, if you look at how the money was coming
10
1 up, the money that he was using to buy these cars, it
2 was the money that people were giving to him, and then
3 he will use that money to buy a cashier's check. The
4 money was not coming in from Udengwu Auto Sales or from
5 my own personal account as the taxpayer.
6 I remit almost all my accounts, my family
7 account, and the business account, copies of it, with
8 you. And there's no money coming into my account from
9 the business. So I have really -- we have nothing to do
10 with collecting or withholding any taxes.
11 The missing records that we have is because of
12 the fact that my brother did not know that this is what
13 the audit will come up asking for. He was under the
14 impression that since the cars not registered here, um,
15 there wouldn't be any problem finding out, you know,
16 asking for the car. And the ones that he purchased that
17 were supposed to be used here, knowing that he's a
18 wholesale dealer and he could not register it himself,
19 he transferred it. Not sold.
20 That's where we have a misunderstanding here.
21 The issue is whether we sold the car or the car was
22 transferred. We do not sell the car to the guy. We
23 just transferred it. We gave him the tax money and
24 registration fee to register it for a friend, even my
25 own family. The car that I bought for my family, I did
26 register it myself to DMV. I pay the taxes and the copy
27 of the -- the, um, pink slip for the tax paid is
28 included on the Statement of Facts. So if I have to
11
1 withhold any tax, it would be on my own car, but I did
2 not. I paid my tax on that car.
3 So, each year, just not being able to provide
4 all the records. But we did try from the time we knew
5 about it. And we still gather some information because
6 most of the information we provided today, we're still
7 coming up with it.
8 MR. HORTON: Thank you very much.
9 Discussion, Members?
10 Member Runner.
11 MR. RUNNER: I just want to check. The
12 material that you've just -- that we've just received,
13 is this material that we've seen before?
14 MR. LAMBERT: Um, I am not sure.
15 MR. RUNNER: Okay.
16 MR. LAMBERT: I can say, from looking at it,
17 um -- and I haven't gone through every piece of paper.
18 MR. NNADI UDENGWU: If -- if I may add, that
19 no, they have not seen these report before.
20 MR. RUNNER: Okay. Okay. Okay. All right.
21 Well, okay, we -- we -- we're not sure if we've
22 seen it before or the auditors have seen it before.
23 MR. LAMBERT: Right. Well, they had not -- at
24 the time that they did the audit, they had not provided
25 us --
26 MR. RUNNER: Okay.
27 MR. LAMBERT: -- the bank information.
28 MR. RUNNER: Okay. Okay.
12
1 MR. LAMBERT: Um, it's just hard for me to
2 remember.
3 MR. RUNNER: Yeah, it's a lot of stuff. No, I
4 get it. So we're not sure.
5 You both -- you -- have you presented this
6 material before?
7 MR. NNADI UDENGWU: It was never demanded, so I
8 didn't present it. They never asked for it, so I did
9 not present it. This is the first time.
10 MR. RUNNER: Okay. Okay.
11 Um, let me ask just one quick -- one quick
12 question, because it seems to me there's a lot of
13 material, and I guess Department's going to need to have
14 to take a look to see whether or not it makes sense to
15 review this and to -- if this answers some of their
16 questions or not.
17 But let me just ask the specific questions that
18 came up in regards to the, um, the cars that were
19 shipped and had, um -- that were -- let's see, they
20 showed -- let's see, how was that? Um, had a Bill of
21 Lading that showed they were shipped before you ever
22 purchased them. How -- how -- how could that happen?
23 MR. NNADI UDENGWU: Let me --
24 MR. COSMAS UDENGWU: When they send the
25 information that the car was purchased, was shipped
26 before it was purchased. I took all the lists that they
27 gave to us, and I went back to the auction to make sure
28 if that is the correct car. And they give me the
13
1 correct day the car was bought.
2 So I don't know how they get the dates for the
3 shipping before the car was even bought.
4 MR. RUNNER: Did you -- did you -- uh, did they
5 bring that up to you before, to say hey, you've got
6 these cars that you've shipped on one day and you've --
7 and you've, um -- and you've purchased them after that
8 date, did that come up in any discussions with the BOE?
9 MR. COSMAS UDENGWU: Yes, it did come up.
10 That's when I took the list to the auction to make sure
11 correct exact date the car was purchased and I sell it
12 back to them. And I told them I don't know how the car
13 was shipped before it was even bought.
14 MR. RUNNER: You don't know how that
15 happened.
16 MR. COSMAS UDENGWU: No. I don't know where
17 they get that information of the dates or something.
18 MR. RUNNER: Well, didn't we get all that
19 information from you?
20 MR. COSMAS UDENGWU: The Bill of Lading, I
21 submitted to them. That's what it was in.
22 MR. RUNNER: Well, didn't we get the Bill of
23 Lading from the taxpayer?
24 MR. LAMBERT: Uh, we got it -- they provided a
25 lot of that information.
26 MR. RUNNER: Okay.
27 MR. LAMBERT: We received some information, um,
28 through the -- the auto auction house.
14
1 But in this particular case, there were no,
2 uh -- there were very limited records that were provided
3 to us. There were no sales contracts that we had. And
4 so we basically, how we established the audit was going
5 to auto auctioners to get --
6 MR. RUNNER: Okay.
7 MR. LAMBERT: -- the purchase of each
8 vehicle.
9 MR. RUNNER: And I guess at some point we're
10 going to need a review to see whether or not you think
11 this helps answer some of the questions that the
12 Department has.
13 MR. LAMBERT: I've looked -- I've looked
14 through it and it wouldn't answer the questions that I
15 would want answered. Um, which is specifically, if you
16 resold this vehicle to someone, um, who'd you -- who did
17 you resell it to? Or you're going to need a Bill of
18 Lading if it was shipped outside the state.
19 Um, this -- this information appears to me to
20 relate to the purchase of the vehicle. And I can't tell
21 if they resold it, which it seems like they're arguing
22 that they -- they really didn't, I can't tell who --
23 MR. RUNNER: Some of the material -- just
24 looking at it very quickly, it looks like some of the
25 issues here are some of your letters to the -- is it
26 Clem's Auto Sales or something?
27 MR. NNADI UDENGWU: Some of the checks that was
28 written to --
15
1 MR. RUNNER: Checks that were --
2 MR. NNADI UDENGWU: -- Clem's Auto, showing
3 that the cars were transferred to him.
4 MR. RUNNER: And some of the checks were for
5 the sales tax.
6 MR. NNADI UDENGWU: The tax and registration
7 fees, sir.
8 MR. RUNNER: Right.
9 MR. NNADI UDENGWU: Because, as a wholesale, we
10 are not actually supposed to register a car.
11 MR. RUNNER: Unfortunately, it shows that you
12 gave that to Clem's.
13 MR. NNADI UDENGWU: Clem's, yes.
14 MR. RUNNER: It doesn't show that Clem ever
15 sent it to the State of California, right?
16 MR. NNADI UDENGWU: That's -- that's -- that's
17 the point I can agree with.
18 MR. RUNNER: Is Clem's still around?
19 MR. NNADI UDENGWU: As far as I knew, from the
20 time that we were doing business, yeah. But since the
21 beginning of the audit, we stopped doing business with
22 him.
23 MR. RUNNER: Yeah, I guess so.
24 Okay. Thanks.
25 MR. LAMBERT: They have closed out as of June
26 30th of '10.
27 MR. HORTON: Member Steel.
28 MS. STEEL: Um, you were asking BOE to exempt
16
1 those $82,000. What happened to the -- any documents
2 about that?
3 MR. NNADI UDENGWU: The ones that are exempted,
4 right?
5 MS. STEEL: Right.
6 MR. NNADI UDENGWU: Okay. We have -- we have,
7 um, the actual date of Bill of Lading -- uh, not Bill of
8 Lading, the Report of Sales that was made out to Clem's
9 Auto.
10 MS. STEEL: Does it include those two cars that
11 they shipped?
12 MR. NNADI UDENGWU: No. It's two -- two
13 different. The cars was transferred to Clem's Auto was
14 never shipped.
15 MS. STEEL: Okay.
16 MR. NNADI UDENGWU: The ones that were shipped,
17 we drove those to the -- those ones, we drove it to the
18 shipping company. So it's two different --
19 MS. STEEL: Okay.
20 MR. NNADI UDENGWU: -- transactions.
21 MS. STEEL: Let me ask BOE, that so why -- if
22 taxpayer provided the documents about those $82,000,
23 then why we disallowed that exemption?
24 MR. LAMBERT: Okay. I'm going to take one step
25 back and just kind of tell how the audit happened, and
26 that'll kind of explain where the 82,000 came from.
27 What happened was they reported their sales on
28 their returns of a certain amount. They claimed all of
17
1 those as exempt from tax, right. So, um -- and I don't
2 remember the exact amount. But they didn't report a
3 substantial amount of their sales.
4 So what we did is, the ones where we were able
5 to verify that they shipped them outside the state, we
6 took all of those and subtracted it from what they had
7 reported. The difference is $82,000.
8 MS. STEEL: Out of that?
9 MR. LAMBERT: Exactly. Out of what they
10 reported, we were able to show that all of it was
11 exempt -- was truly exempt except for $82,000.
12 MS. STEEL: Okay.
13 MR. LAMBERT: Now the remaining amount that is,
14 um, $2.3 million --
15 MS. STEEL: Right.
16 MR. LAMBERT: -- they also consider that to be
17 exempt from tax, except they just did not report it and
18 claim it as exempt. So that -- so the $82,000 just
19 happens to be what was left over.
20 MS. STEEL: Okay.
21 MR. LAMBERT: There was no -- it was kind of
22 happenstance as to what they reported and what they
23 claimed.
24 MS. STEEL: Okay.
25 MR. LAMBERT: So, to answer your question, um,
26 we allowed everything where they had a Bill of Lading
27 that showed --
28 MS. STEEL: So $82,000 is a balance that, you
18
1 know --
2 MR. LAMBERT: For that. But there's still the
3 2.3 million. They -- they would consider that in
4 addition to the $82,000.
5 MS. STEEL: Okay. And then there is, uh, on
6 Statement of the Facts, the first page that, uh, he said
7 that few vehicles that sold to -- actually purchased for
8 my family and some friends, not sold to retail dealer.
9 Who's responsible for the sales tax for this?
10 MR. LAMBERT: Well, they're making -- the way I
11 understand it is they're the ones that are making the
12 sale --
13 MS. STEEL: To family members.
14 MR. LAMBERT: -- to family, and they're
15 responsible for the tax.
16 What they're doing -- what I believe they're
17 doing is they're in fact making the sale. I don't
18 know -- I don't have the documentation to say whether
19 they -- whoever they got to register those vehicles --
20 because they got a used car -- another used car dealer
21 to register the vehicles.
22 MS. STEEL: But when you buy something from the
23 used car dealer --
24 MR. LAMBERT: Right.
25 MS. STEEL: -- then they -- the used car dealer
26 has to pay -- collect the sales tax, and they have to
27 pay the sales tax here.
28 MR. LAMBERT: That is correct. But the problem
19
1 here is, the used car dealer's not the one making the
2 sale. They made the sale.
3 MS. STEEL: So what you are saying is this
4 taxpayer bought it and then sold it to the family?
5 MR. LAMBERT: Yes.
6 MS. STEEL: That's not --
7 MR. LAMBERT: That's my -- that is my
8 understanding.
9 MS. STEEL: Okay. I don't see the proof here,
10 but I just want to know the facts there.
11 MR. LAMBERT: This is -- this is my
12 understanding, and this was not in the paperwork. And
13 so, if I'm wrong, someone can correct me. But it's my
14 understanding of how this works is that they purchased
15 the vehicle. A family member ended up with the
16 vehicle.
17 MS. STEEL: Right.
18 MR. LAMBERT: It was registered through a used
19 car -- another used car dealer. If in fact --
20 MS. STEEL: Registered directly to his -- this
21 taxpayer's family members from used car dealer. Then
22 used car dealer is responsible.
23 MR. LAMBERT: They could be. They could also
24 be held responsible.
25 MS. STEEL: Right.
26 MR. LAMBERT: Because they filled out the
27 Report of Sale.
28 MS. STEEL: Not they could be. They are
20
1 responsible, because they are selling it.
2 MR. LAMBERT: Yeah, that's -- that's not my
3 understanding. If somebody has a different opinion of
4 that --
5 MS. STEEL: I thought that's the sales tax --
6 MR. LAMBERT: Well, they --
7 MS. STEEL: -- that when you are dealer that
8 you have to --
9 MR. LAMBERT: Right.
10 MS. STEEL: -- collect the sales tax.
11 MR. LAMBERT: Uh, but here's the problem is, is
12 that dealer's not the one making the sale.
13 MS. MANDEL: You're talking about different
14 dealers. You guys aren't just talking about --
15 MR. LAMBERT: We're not on the same page?
16 MS. MANDEL: You're not on the same page on
17 what you're talking about.
18 MR. LAMBERT: Okay. I'm misunderstanding.
19 MS. MANDEL: Yeah.
20 MS. STEEL: Let me just ask taxpayer just
21 quick.
22 MR. NNADI UDENGWU: Yes.
23 MS. STEEL: So you bought cars for your
24 family.
25 MR. NNADI UDENGWU: Yes, we bought the cars
26 from the auction from our family. And then before we
27 find out that we're not supposed to handle registration
28 and collecting taxes, even though we collected the tax
21
1 from the family. Because the dealer --
2 MS. STEEL: Okay.
3 Mr. Levine, when you bought -- buy the car from
4 the auction, what happened here?
5 MR. LEVINE: I'm not sure I follow. When he
6 purchased from the auction?
7 MS. STEEL: He -- no. His family -- he said
8 that --
9 MR. LEVINE: When he sells to his family.
10 MS. STEEL: -- registration went directly to
11 his family.
12 MR. LEVINE: If I understand correctly, he made
13 the retail sale -- he made the, in fact, retail sale to
14 family members. He went -- he says he went to another
15 dealer.
16 MS. STEEL: He just said from the auction.
17 MR. NNADI UDENGWU: No. No.
18 MS. MANDEL: My -- excuse me. My understanding
19 is that the problem that he has, which staff referred to
20 earlier, is his license from DMV is a wholesaler's
21 license.
22 MR. NNADI UDENGWU: Thank you.
23 MS. MANDEL: So he has no authority via DMV to
24 register cars that he has sold. That's the view, which
25 is why he's supposedly sending them and having some
26 second car dealer who is registered with DMV as a
27 retailer --
28 MR. NNADI UDENGWU: Thank you.
22
1 MS. MANDEL: -- do the registration, and he's
2 trying to run the tax through them.
3 MR. LEVINE: Yes. And I can answer that
4 question. We -- if any -- a dealer who files a retail
5 Report of Sale that we know about is going to get a bill
6 if they don't pay the tax.
7 It would be -- we have cases of dual liability,
8 but he's the retailer. But if he can show that it was
9 really registered by a -- another dealer, I don't think
10 we'd have a case of dual liability. If he passed the
11 tax on, the dealer registers it, we're going to look to
12 that other dealer. And when that dealer says I didn't
13 make the retail sale, we're going to say you registered
14 it. And we've had that rule for -- for over 50 years.
15 MS. STEEL: I want to go back to my original
16 question.
17 You bought the car for your family, but
18 registration that when you bought the car, it didn't go
19 through you. But you bought the car from the auction.
20 MR. NNADI UDENGWU: Yes.
21 MS. STEEL: It went straight to your family
22 members.
23 MR. NNADI UDENGWU: Yeah. Okay. I bought the
24 car --
25 MS. STEEL: Just "yes" or "no".
26 MR. NNADI UDENGWU: Yeah. I bought the car
27 from the auction. The family member would give me money
28 to buy a car for him. That's one important thing. In
23
1 other words, I'm not using my money.
2 MS. STEEL: No, no, no. Okay. That's not my
3 question.
4 MR. NNADI UDENGWU: Okay.
5 MS. STEEL: Is the registration -- when you
6 bought the car, it went straight to your family member.
7 MR. NNADI UDENGWU: Yes.
8 MS. STEEL: And registered with your family
9 name.
10 MR. NNADI UDENGWU: Yeah, through a retail
11 dealer.
12 MS. STEEL: Okay.
13 MR. NNADI UDENGWU: Not me.
14 MS. STEEL: So then retail dealer is the -- is
15 responsible for sales tax, collecting the sales tax.
16 MR. LAMBERT: In that particular case, based on
17 Appeals' decision, and that in fact happened, then, um,
18 we would need the proof. Um, and then we would go
19 against the --
20 MS. STEEL: So do you have those proof that
21 it's been registered to your family members?
22 MR. NNADI UDENGWU: Yeah. Some of the cars
23 actually I sell to my sister.
24 MS. STEEL: I totally get it.
25 So do you have those proof?
26 MR. NNADI UDENGWU: That the car was registered
27 to them?
28 MS. STEEL: Right.
24
1 MR. NNADI UDENGWU: Yeah.
2 MS. STEEL: How many cars you talking about?
3 MR. NNADI UDENGWU: If I could remember, um, I
4 think I have -- personally, I have about four or five
5 cars that are registered to my family.
6 MS. STEEL: Okay.
7 MR. NNADI UDENGWU: That I could remember. And
8 there's some friends, you know, of relatives, too, that
9 I --
10 MS. STEEL: I'm here to try to help you, just a
11 little amount here.
12 MR. NNADI UDENGWU: Yeah.
13 MS. STEEL: That I'm not -- so that's going to
14 be $2.3 million you didn't report. But out of that, the
15 four or five cars went to your family.
16 MR. NNADI UDENGWU: That I handled.
17 MS. STEEL: Do you have a --
18 MR. NNADI UDENGWU: That I handled.
19 MS. STEEL: Okay. Don't keep saying handled.
20 You went there with their check and it was registered
21 directly to your family; that's what you said, right?
22 MR. NNADI UDENGWU: Yeah. Yes.
23 MS. STEEL: That's what I'm asking.
24 Mr. Levine, here --
25 MR. LEVINE: I think there's -- there's a
26 little disconnect because I just don't think you're on
27 the same page.
28 I don't think the auction registered it. I'm
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1 not sure how the auction deals with him and if they put
2 it in his wholesale name. I don't know how that works.
3 But my understanding is he went to the auction, he
4 bought it. They did whatever they do for him to get it,
5 and then he took it, the information, to a different
6 retail dealer who did the registration.
7 What Appeals would require to -- to grant on
8 those isn't just to show that it was registered, because
9 the purchaser, he could have given the information to
10 the -- the -- his family and they go to the DMV. We'd
11 need to see that the other dealer filed a Report of
12 Sale.
13 MS. STEEL: Who handled it.
14 MR. LEVEIN: Right.
15 MS. STEEL: The middle person there.
16 Okay. Thank you.
17 MR. HORTON: Um, just -- Mr. Runner.
18 MR. RUNNER: Go ahead.
19 MR. HORTON: But allow me to try to, uh, get us
20 on the same page, or at least the Department and
21 Mr. Levine.
22 Mr. Levine has sort of articulated the law, as
23 I understand it, relative to a registered dealer.
24 Although I would probably go one step further and
25 indicate that if a registered dealer is participating in
26 the transaction, they assume the responsibility.
27 The law as it relates to dealers is somewhat
28 unique in the concept of sales tax, in that you have to
26
1 be registered in order to just transfer cars, sell a
2 car. That's the reason for some of the legislation that
3 we're seeking as it relates to dismantlers and other
4 folks.
5 And most recently the Board of Equalization has
6 developed a means in which to reconcile DMV
7 registration, so possibly we could go back to the DMV
8 and determine, if we have the VIN numbers and so forth,
9 determine who actually registered --
10 MR. RUNNER: Mm-hmm.
11 MR. HORTON: -- the car. And if we find that a
12 registered dealer registered the car, then the liability
13 shifts, uh, to that dealer in participating in the
14 transaction. As it relates to the -- I understand that
15 there are several different categories of sales here;
16 sales for resale, transfers of cash and revenue to a
17 registered dealer, and then transfers to friends who
18 register the cars themselves, which is an activity that
19 I wouldn't necessarily recommend, but hindsight is
20 always 20/20.
21 And on the cars that the family members
22 register themselves, in the registration process, in
23 that no dealer is participating, you don't have a DMV
24 Report of Sale when entering into the DMV. And so often
25 times, or actually part of their policy is to ask how
26 much did you pay for the car, and they will actually
27 impute a value in the sales tax in the absence of a
28 document that says you paid nothing. And so, even in
27
1 that case, we may actually be able to verify that
2 they -- the ultimate consumer of the car actually ended
3 up paying it to the DMV.
4 So we may be faced with a 30/30/30 situation
5 where the Department can actually assist the taxpayer in
6 obtaining information from the DMV to verify these
7 various different transactions.
8 Uh, your thoughts, Department?
9 MR. LAMBERT: Um, I -- I would agree with you.
10 I think we -- we do have the VIN numbers.
11 MR. HORTON: Okay.
12 MR. LAMBERT: And we can, for the most part,
13 um, get that information. So it still might leave --
14 what it still might leave is, if we can't see where that
15 vehicle is registered in the State of California, uh,
16 then you still have an issue of that vehicle being
17 subject to tax because you don't, um, have the proper
18 documentation for it leaving either the state or the
19 country.
20 MR. HORTON: Yeah, that's the -- that's the
21 third category.
22 MR. HANKS: Mr. Horton, I would also suggest
23 that, in lieu of a 30/30/30, that a reaudit might be
24 more appropriate given that this might take some time
25 actually to -- to research all the VIN numbers with the
26 Department of Motor Vehicles.
27 MR. HORTON: Okay. Um, I would, uh, share that
28 we -- we have a team member within the Board of
28
1 Equalization that is working directly with the DMV.
2 MR. HANKS: Yes, we do.
3 MR. HORTON: And we've established this
4 reciprocal agreement. We have a Memorandum of
5 Understanding with them as well. So I would encourage
6 us to utilize that.
7 Further discussion, Members?
8 MR. NNADI UDENGWU: If I may say, thank you,
9 Mr. Horton. You know, in one of my memos to the Board,
10 I had --
11 MR. HORTON: Uh, sir.
12 MR. NNADI UDENGWU: Oh, sorry.
13 MR. HORTON: Things are going your way.
14 MR. NNADI UDENGWU: Thank you, sir.
15 MR. HORTON: Um, is there a motion, Members?
16 MS. STEEL: 30/30/30.
17 MS. YEE: Yeah.
18 MR. HORTON: Maybe a reaudit?
19 MS. YEE: Yeah, reaudit.
20 MS. STEEL: Reaudit.
21 MR. HORTON: Uh, moved by Member Yee to
22 recommend a reaudit. Second by Member Steel.
23 Without objection, Members, such will be the
24 order.
25 Thank you very much for appearing before us.
26 The Department will contact you to explain what the
27 reaudit is. Uh, they may want additional documentation.
28 During this period of time, feel free to provide them
29
1 any additional documentation that you may have, uh,
2 names, description, VIN numbers, Bill of Ladings, uh,
3 information from the shipper who may have shipped the
4 documents overseas on your behalf.
5 MR. NNADI UDENGWU: Yes, sir. Thank you very
6 much.
7 MR. HORTON: You're welcome, sir.
8 ---oOo---
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1 REPORTER'S CERTIFICATE
2
3 State of California )
4 ) ss
5 County of Sacramento )
6
7 I, KATHLEEN SKIDGEL, Hearing Reporter for the
8 California State Board of Equalization certify that on
9 February 1, 2012 I recorded verbatim, in shorthand, to
10 the best of my ability, the proceedings in the
11 above-entitled hearing; that I transcribed the shorthand
12 writing into typewriting; and that the preceding pages 1
13 through 30 constitute a complete and accurate
14 transcription of the shorthand writing.
15
16 Dated: February 27, 2012
17
18
19 ____________________________
20 KATHLEEN SKIDGEL, CSR #9039
21 Hearing Reporter
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